Yeah, be very careful with that bro. If you don't close your positions and don't instruct the broker what you wish to do (usually by 2:30), you're basically leaving it to their discretion which means you're at their mercy for sticking it to you (especially if there's afterhours or weekend news that could affect the price of the stock)! Normally for call options, they will close the position if you don't have the money and you don't have a margin account. But if they forget to do that, or you go into the money by even $0.01 (normally) right before close, they would automatically get exercised and then the broker will liquidate your position first thing on Monday morning (and who knows what the stock price will be then). Different brokers have different rules and you should check the specific ones for your brokerage, but that's generally what happens and it could end up being a very costly mistake.
This happened to me with some call options with LNKD. Even though my account was tax sheltered (meaning I could not even transfer those large sums to it), I ended up in the money by exactly a penny at 4:00 p.m., they ended up buying 1000 shares of LNKD @ over $100, even though there was hardly any money in that account and then the stock opened $3+ lower on Monday and just like that, it was a $3500 loss.
This happened to me with some call options with LNKD. Even though my account was tax sheltered (meaning I could not even transfer those large sums to it), I ended up in the money by exactly a penny at 4:00 p.m., they ended up buying 1000 shares of LNKD @ over $100, even though there was hardly any money in that account and then the stock opened $3+ lower on Monday and just like that, it was a $3500 loss.
if you don't have enough money/margin to buy the underlying instrument they will credit your account with the difference between the call option price and the current bid price of the instrument on the day after expiration.so if your strike price is $10 and the current bid price is at $12 you will get credit $2 per contract for each contract.of course they will charge you commission so this usually does not happen because there is no benefit to it for the option holder.just sell the options the day before if you don't want to exercise them.
Thanks for the heads up. I could see that happening. So how do they come after you for that $3500 if there are not sufficient funds in your account?
OK, let's say Friday comes and stock closes at $12. First, is there a difference between stock close as it appears on the board and the bid price as you call it?Second, does it matter what time of the day on Friday you choose to exercise your option? A better question is can you specify the time? Prices fluctuate all day so timing is important.
OK, let's say Friday comes and stock closes at $12. First, is there a difference between stock close as it appears on the board and the bid price as you call it?Second, does it matter what time of the day on Friday you choose to exercise your option? A better question is can you specify the time? Prices fluctuate all day so timing is important.
Well, there was enough money in the account to cover a $3500 loss, but not enough in it to cover a $100K+ stock purchase. I basically had to bite the dust on that, because their policy (although vague and clearly not applicable to tax sheltered accounts which are not allowed to have negative balances in Canada), seemed pretty clear to them. But I have no idea what would happen if you didn't have the money in the account to cover the loss. You'd have to look into your user agreement.
BTW, I've never heard of what Playboy's saying despite having researched this quite a bit. This may be a broker specific thing, but options positions are either closed the day before the expiry or exercised over the weekend at the strike price. I don't even know what type of mechanism in options trading would allow the broker to close an option position over the weekend and credit the difference to you, because there's no trading on the weekends.
BTW, I've never heard of what Playboy's saying despite having researched this quite a bit. This may be a broker specific thing, but options positions are either closed the day before the expiry or exercised over the weekend at the strike price. I don't even know what type of mechanism in options trading would allow the broker to close an option position over the weekend and credit the difference to you, because there's no trading on the weekends.
Is the credit actual currency or equivalent shares? I suppose it depends on the broker. Actually, with online trading I am not even sure you really have a broker to talk to. But as Bi-honar mentioned you don't want to leave the timing up to the broker/computer. In may case, there is little money involved. I might as well buy at the strike price and decide what to do with them next.
flint,you need to learn a few things about options before you trade them.options are mainly used as an instrument to limit losses or lock in gains for investors who own a stock.when you buy or sell an option on a stock you already own it is a covered call/put option.that is the vast majority of the options traded.what you have done is to buy a naked option since it does not look like you own any shares of the underlying stock.this is basically gambling.since you have been lucky and are in the money your prudent action is to sell the naked calls before the expiration day.that way you keep part of the time value of the option.if you wait until the expiration day you will lose all the intrinsic time value of the option.it's very very very rare that a naked in the money call option is allowed to expire especially if you don't have the means to buy the number shares involved.if you let it expire the broker should credit your account in cash with an amount equivalent to total the difference between the strike price and the opening bid price on the first trading day after the expiration,minus any commissions.you lose control when the option expires which is why you should not let it expire.so your best action it to sell the call options before expiration.if you give me the exact option,strike price and expiration date, i can tell you when is the best time to sell it.